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Is it always necessary to opt to tax a property?

By Andrew Needham, November 2020

Andrew Needham looks at when to opt to tax a property for VAT purposes and when it is not necessary. 

If a business is renting or selling a commercial property it will be making an exempt supply (unless it is selling a commercial property less than three years old, in which case it is automatically standard rated).  

If it makes exempt supplies it cannot recover any of the associated VAT (subject to the de-minimis limits).  

Opting to tax 

The only way to avoid this input tax restriction is to opt to tax the property.  By doing this, it turns an exempt supply into a standard rated taxable supply. It can then reclaim the VAT on any costs relating to the property, but it has to charge VAT on the rent or sale of the property. 

If it is a property rental business, it therefore makes sense

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